The summer-into-fall bond market rout continued apace this week, even intensifying somewhat, as a resilient economy and labor market leave open the question as to whether the Fed is done raising interest rates for this cycle. Mortgage rates kicked higher again, and on a time-reference basis, the average 30-year fixed-rate mortgage is as high as it was in the week of December 8, 2000.
Of late, more signs that the economy refuses to cooperate with the Fed's program have only served to exacerbate the lack of investor interest in bonds and MBS. High bond yields should eventually attract investors, but probably not until there is some clarity as to the trend for inflation and monetary policy; failing that, it will likely take at least a more meaningful and broad slowing in economic growth, a sharper slackening in tight labor markets or a faster step-down in inflation pressures. At present, none of these appear imminent. Well, at least the government shutdown was kicked down the road until next month, for what that's worth.
Headwinds aplenty remain for mortgage shoppers, and the winds only seem to be getting more considerable of late. The Mortgage Bankers Association reported a 6% decline in requests for mortgage credit in the week ending September 29. The trade group's release noted that applications for mortgage are at their lowest point since 1996, as requests for purchase-money mortgages shrank by 5.7% and those to refinance existing loans dropped by 6,6%. With mortgage rates pressing higher last week, it's a reasonable assumption that applications for mortgages will press lower still this week.
No one wants to see the economy turn sluggish, or unemployment rise, or wages become stagnant, but to some degree that's what it's going to take to get interest rates to find reason to retreat on a sustained and meaningful basis. Of course, getting the government's fiscal house in better working order would be useful too, but whether it is or isn't, the cascade of debt needed to cover the costs of running the country aren't going away anytime soon, and there's no guarantee that there will be buyers for it at any given price. Here's hoping the current bond "buyer's strike" finds a reasonable settlement soon.
We thought that we'd see perhaps a mild increase in rates last week, but the data failed to support that hope. We'd believe a five-basis point or so increase in the average offered rate for a conforming 30-year FRM as reported by Freddie Mac this Thursday, but who knows what surprises might lurk in the minutes of the last Fed meeting or in the Consumer Price Index reports?